Whether it’s a search online or the headline of an article about franchising, getting into franchising is usually referred to as “buying a franchise.” A more accurate term that should be used would be investing in a franchise. If you tell a franchisor rep that you would prefer to invest in a franchise, you may count on the franchisor rep to associate your investor role as a person who won’t be involved with the daily operation of the business. This may be regarded as splitting hairs, but in reality the distinction between an existing business and a franchise could be that the existing business provides revenues and is up and operating. The key difference between the two is that an independent business depends on the owner, whereas a franchise needs both the franchisor and franchisee to share in the efforts in order to be successful. This is why when you are considering a franchise opportunity, as the candidate, you need to play the role of investor versus the role of a buyer.

• Approach owning a franchise as you would buying into any other sort of investment; base your decisions on the return that investment will make. Becoming your own boss and obtaining a degree of private independence are a lot of the rewards of running a franchise, but you also have to earn a reasonable return in your investment. Unless you’ve got the appropriate business qualifications you must engage specialist consultants like a business broker or a cpa to assist you in assessing your investment. You want to avoid downfalls like under capitalization or making an incorrect investment.

• You’ll find major differences in the thought process when approaching a business transaction as a buyer as opposed to an investor. Whenever we act as a buyer, the expectation is to be persuaded why we should really close on the business. There can be a more emotional facet to the buyer- seller connection. Consequently, some buyers can be vulnerable to powerful sales tactics. An investor comes in with a different point of view. When investing, most of the people concentrate on the economic elements in the transaction and less on mental elements. This doesn’t diminish the importance of relationships inside a franchise enterprise nevertheless it shouldn’t be by far the most vital component.

• Perform a break even and return on investment analysis. Make sure that you use a professional to help you. The results will not be a crystal ball, but you’ll be able to predict prospective franchise revenue in the franchise and associate the probable benefits to your investment. Even if you’re off by 10 or 20%, it’s greater than not having a forecast at all.

• Talk to quite a few franchisees and be sure to ask lots of questions. Get as much information as possible from existing and ex – franchisees. This can be valuable information about the franchisor, as well as other areas.

• Use a business broker, franchise lawyer and cpa to review the Franchise Disclosure Document. Though you are conducting your due diligence with the focus on the economic aspect in the franchise don’t ignore the other components of a comprehensive franchise evaluation. The franchisor financials can expose a great deal about the franchisor, nevertheless it takes an experienced individual to identify difficulty areas and warning signs.

When thinking of a franchise opportunity, you must have the mindset of an investor, not a buyer. An investor considers a franchise opportunity from a very different view.

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com